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In tit-for-tat tariff war, both Airbus and Boeing are losers

The tariff war that began in 2004 was continued, when the European Commission (EC), in response to the United States’ own new set of tariffs, introduced counter-measures on November 9, 2020. The tit-for-tat tariff war, primarily focused on allegations of illegal subsidies to both Airbus and Boeing by the conflicting parties, has entered a new phase.

“We have made clear all along that we want to settle this long-running issue. Regrettably, due to lack of progress with the U.S., we had no other choice but to impose these countermeasures,” stated executive Vice-President for an Economy that Works for People and Commissioner for Trade Valdis Dombrovskis on November 9, 2020. The remark was made in response to the EC announced counter-measures.

EC’s tariffs, according to the authority’s statement, are “strictly mirroring the countermeasures imposed by the United States in the context of the World Trade Organization (WTO) case on subsidies to Airbus.” In addition to tariffs of 25% to various agricultural and industrial products, a 15% tariff was imposed on commercial aircraft produced in the United States, starting from November 10, 2020.

What does this mean for Boeing?

Exposure to the EU

While Airbus has also bore the brunt of the crisis, it is presumably less impacted than Boeing. The US planemaker was battling a crisis of its own, as the Boeing 737 MAX, one of its cash-cow products, has been grounded since March 2019.

While the un-grounding is seemingly just around the corner, Boeing has repeatedly bled cash ever since the aircraft was grounded and the company was not able to coup delivery payments. Much like with the current crisis, at first, the consensus was that this would quickly turn a corner. Alas, it was not meant to be and Boeing’s backlog was being fulfilled, yet did not shrink. Up until January 2020, the company was breaking sweat at Renton, Washington, the United States, and building aircraft that could not be delivered.

As of November 10, 2020, Boeing has 395 built 737 MAX aircraft that are yet to be delivered to customers. Production has been restarted since late-May 2020, and the first MAX to fly after the restart of production was N338ST, destined to American Airlines (A1G) (AAL). All in all, Boeing has built 782 of the newest iteration of the 737, including already-delivered frames prior to the grounding in March 2019.

Out of the 782, 87 Boeing 737 MAX aircraft belong to European Union-based airlines, with 53 jets still undelivered. The undelivered jets do not include pending deliveries to United Kingdom-based carriers, as it is unclear what kind of trade policy the UK government will choose after Brexit is finally over on December 31, 2020.

Further down the production line, there are 423 unfilled orders for the Boeing 737 MAX that are supposed to go to EU-based operators, including leasing companies that will still have to register the aircraft before transferring them to an airline operator.

Other Boeing models, including the 777, the 777X and the 787 have a total of 90 aircraft in the backlog that are destined for airlines based in the EU. With the MAX, a total of 513 unfilled orders are destined to member states’ airlines, or 10% of the total backlog prior to the ASC 606 Adjustment, according to Boeing data.

 

Burden of debt

While exposure to the recently imposed tariffs is not major by any means, there are two things to consider.

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